* Australian dollar sheds 1 pct after softer CPI
* Sterling at 2-month lows as dollar and Brexit weigh (New throughout, updates rates and comments to to U.S. market open; new byline, changes dateline, previous LONDON)
By Saqib Iqbal Ahmed
NEW YORK, April 24 (Reuters) - The euro fell against the U.S. dollar on Wednesday after a surprise drop in a leading indicator for economic activity in Germany highlighted the divergence between economic data in the United States and the euro zone.
German business morale deteriorated in April, bucking expectations for a small improvement, as trade tensions hurt the industrial engine of Europe's largest economy.
The euro fell 0.32% to $1.1189, close to the lowest it has been since early March.
The greenback, by contrast, was supported by strong U.S. housing data, the latest signal the American economy is outperforming rivals.
"The broader importance of the German data is that market participants had been hoping that the rebound in Chinese monetary conditions, in lending in China, would help to boost demand for German exports and would lift spirits in the euro zone's core economies," said Karl Schamotta, director of foreign exchange strategy and structured products at Cambridge Global Payments.
"We are seeing successive prints that show that Germans are not necessarily turning more positive here," said Schamotta.
"Trade pressure and concerns about global protectionism are weighing over Europe's overall external position and challenging its growth trajectory. We are looking at underperformance relative to the U.S. for now," he said..
The dollar index, which measures the U.S. currency versus a basket of six major rivals, was up 0.13% at 97.766, its highest since June 2017.
Investors will watch the release on Friday of U.S. gross domestic product data for the first three months of 2019, for signs of whether the United States remains stronger than other leading economies.
On Wednesday, the Australian dollar fell 0.99% after weaker-than-expected Australian inflation numbers heightened the prospect of an interest rate cut.
The pound held at a two-month low on Wednesday, weighed down by a broad-based rally in the dollar and fading hopes of a breakthrough in Brexit talks between the British government and the opposition.
The Canadian dollar weakened to a nearly seven-week low against its U.S. counterpart, investors awaited an interest rate decision from the Bank of Canada.
Reporting by Saqib Iqbal Ahmed